Financial planning is crucial for tax savings. Planning your finances would not only help you understand your income tax liability, but also check your expenses and maximize your returns on investment. In this way, you could invest in a variety of tax saving instruments and ensure that your investments maintain a steady return even in the wake of constantly fluctuating financial markets.
Overall, if you want higher incomes and better wealth in the future, plan your finances as soon as possible. To help, here’s our selection of the top four tax saving decisions you have to make.
1. Invest in a Unit Linked Insurance Plans (ULIPs):
In a single investment plan, ULIPs offer twin benefits of insurance and investment. Depending on your risk profile, age, income and financial goals, you can allocate the invested amount to a variety of equity and debt funds with ULIPs. In addition, you can also use life insurance cover during the policy period. One of the most important features of ULIP plans is that you can track your investments regularly by evaluating your funds ‘ net asset value (NAV). Your beneficiary would also receive the higher of the two values: the amount guaranteed or the fund value accumulated in the event of any eventuality. When we talk about the tax saving aspect of ULIPs, the premium paid is eligible for tax deductions in accordance with Article 80C, subject to a maximum of Rs 1.5 lakhs per year. In addition, the maturity benefits received by your beneficiary are exempted under the provisions of Section 10(10D). This makes ULIP one of the best tax saving tools that can help you to create a substantial corpus in the future and protect your family from unprecedented life situations.
2. Maximise Your Investments through Equity Linked Saving Schemes (ELSS):
ELSS, a type of mutual fund, was explicitly created to save taxes. Since ELSS investment is allocated only to equity funds, it is a slightly risky option but also gives higher returns (* returns are subject to market conditions). In addition, the premium invested in ELSS can be deducted from taxes up to Rs. 1.5 lakh, pursuant to Section 80C, while any long – term gains you gain at the time of exit will not incur any Long – Term Capital Gains Tax (LTCG) in accordance with current tax legislation. Another characteristic of ELSS funds is that you can invest in them by means of a systemic investment plan or SIP tax-saving. It is also important to note that ELSS investments made via the SIP route help you to minimize the risks associated with inflation – adjusted returns through compounding and rupee costs.
3. Save for Your Retirement:
It’s important that you save money for your retirement while you are still working. It is therefore recommended that you invest a portion of your income in a pension fund (also known as pension funds). You can thus not only plan a peaceful retirement life, but also benefit from tax benefits on the investment you make. Most pension funds from renowned insurers like Future Generali are hybrid in nature and you have the option of receiving a regular pension through the systematic redemption of the units. When we talk about the tax benefits provided by pension funds, the invested amount qualifies for a tax deduction up to Rs. 1.5 lakh according to section 80c.
4. Purchase a National Savings Certificate (NSC):
This scheme, introduced by the Indian Government as a low – risk investment scheme that could reach the majority of the population, is only available with the India Post. These certificates can therefore be obtained at the nearest post office, made on your behalf or in cooperation with another adult family member. You can also make the NSC in the name of a minor by a guardian only. The National Savings Certificate currently offers an annual compounded interest rate of 8 percent. That said, the interest rate is reset every three months, according to the G-Sec yields of the previous quarter. In addition, the interest earned each year is reinvested in the scheme until the date of early withdrawal or maturity. Investment in the NSC is eligible for deductions up to Rs in respect of tax savings. 1.5 lakh according to section 80c. Financial planning is essential in India if you want a high income now and maximize your wealth in the future. Not only must you create multiple sources of income early in your life, but you must also know how to save your income tax. Only then can you ensure that your investments maintain a healthy percentage of long – term returns, while you have the minimum possible tax liability.
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